xi.1.b. g.r. no. 144476. february 1, 2002

7/29/2019 XI.1.b. G.R. No. 144476. February 1, 2002

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SECOND DIVISION

[G.R. No. 144476. February 1, 2002.]

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L.

ONG, WILLIAM T. ONG, WILLIE T. ONG, And JULIE ONG

ALONZO, petitioners, vs. DAVID S. TIU, CELY Y. TIU, MOLY YU

GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU,

LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT

CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS

OF PASAY CITY, And the SECURITIES AND EXCHANGE

COMMISSION, respondents.

[G.R. No. 144629. February 1, 2002.]

DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU,

D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, And

INTRALAND RESOURCES DEVELOPMENT CORP., petitioners,vs. ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L.

ONG, WILLIAM T. ONG, WILLIE T. ONG And JULIA ONG

ALONZO, respondents.

Eslelito P. Mendoza andFeria Feria Lugtu O'Noche for petitioners in G.R. No. 144476.

Gonzalez Betiller Bilog & Associates for W. Ong.

Aquilino L. Pimentel, IIIfor First Landlink Asia Dev't Corp.

Arturo Santos for Masagana.

Tan Acut & Madridfor respondents in G.R. No. 144476.

SYNOPSIS

The First Landlink Asia Development Corporation (FLADC) was fully owned by the

Tius. The Ongs were invited by the Tius to invest in FLADC and the corresponding Pre-

Subscription Agreement was executed whereby both parties agreed to maintain equal

shareholdings in FLADC with the Ongs investing cash while the Tius contributing

property, which included a parcel of land in the name of Masagana Telemart, Inc.


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The controversy between the two parties arose when the Ongs violated the provisions of

the Pre-Subscription Agreement which became the basis of the Tius' unilateral rescission

of the same. The Securities and Exchange Commission (SEC) confirmed the rescission.

On appeal, the Court of Appeals affirmed the decision of the SEC and ruled that both

parties violated the provisions of the Pre-Subscription Agreement.

The Supreme Court held that the Court of Appeals correctly confirmed the rescission of

the Pre-Subscription Agreement on the basis of Article 1191 of the Civil Code. In thecase at bar, the correlative obligation of the Tius to let the Ongs have and exercise the

functions of the positions of President and Secretary is the obligation of the Ongs to let

the Tius have and exercise the functions of Vice-President and Treasurer, thus reciprocal

obligations exist, making the remedy of rescission available.

The Supreme Court, likewise ruled that as a legal consequence of rescission, the order of

the Court of Appeals to return the cash and property contribution of the parties is based

on law, hence, it cannot be considered an act of misappropriation.

SYLLABUS

1.CIVIL LAW; CONTRACTS; STIPULATIONSPOUR AUTRUI; PRESENT IN CASE

AT BAR. We agree with the Tius that the things which are the object of the Pre-Subscription Agreement one million shares of stock subscribed to by the Ong Group,

the additional 549,800 shares subscribed to by the Tius, and the corporate positions

mentioned above are not in the possession of third persons, but are in the possession

of the parties to the Pre-Subscription Agreement. In any case, FLADC is not a third

person in relation to the Pre-Subscription Agreement though not named as a party.FLADC is deemed a party to the agreement by virtue of stipulations pour autrui clearlyand deliberately conferring on it a favor or benefit which it subsequently accepted. (Art.

1311, Civil Code) Such benefit was in the form of the payments made by the parties for

their subscription to shares of stock in FLADC, which FLADC accepted.

2.ID.; ID.; INTERPRETATION; WHEN TERMS OF A CONTRACT ARE CLEAR,THE LIBERAL MEANING OF ITS STIPULATION PREVAILS; CASE AT BAR.

The Deed stipulates in simple language "all the obligations of performing all the terms

and conditions including, but not limited to, the transfer of the said parcel of land in the

name of (FLADC)." It imposes no obligation at all on the part of the assignor forpurposes of transferring the parcel of land in the name of FLADC. In the interpretation of

contracts, "if the terms of a contract are clear and leave no doubt upon the intention of thecontracting parties, the liberal meaning of its stipulation shall control." (Art. 1370, Civil

Code). Thus, the FLADC should shoulder all obligations, such as taxes, legal fees,

notarial fees and expenses of registration, for the conveyance to be registered and the title

to the property placed in the name of FLADC.


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3.ID.; ID.; RESCISSION; LEGAL CONSEQUENCE OF; RESTORATION OF THE

PARTIES TO STATUS QUO ANTE; CASE AT BAR. As a legal consequence of

rescission, the order of the Court of Appeals to return the cash and property contribution

of the parties is based on law, hence, cannot be considered an act of misappropriation.

For how can the rescission of the Pre-Subscription Agreement be implemented without

returning to the two groups whatever they delivered to the corporation in accordance withthe Agreement? With regard to the order of the Court of Appeals transferring to the Tiu

Group whatever remains of the assets of FLADC and the management thereof, the same

is but an inevitable consequence of the rescission of the Pre-Subscription Agreement.

Restoration of the parties tostatus quo ante dictates that the building constructed on the

two (2) existing lots of FLADC, the remaining asset of FLADC, be transferred to the Tiu

Group. Thestatus quo ante immediately prior to the execution of the Pre-Subscription

Agreement was that the Tius, then wholly owning FLADC, had control and custody over

this remaining asset. ACaTIc

D E C I S I O N

BUENA, Jp:

Consolidated Petitions for Review of 1.) the Decision of the Court of Appeals 1 in CA-

G.R. SP No. 49056 dated October 5, 1999, which affirmed with modifications the Order

dated September 11, 1998, issued by the SECEn Banc in SEC Case No. 598 and 601,

confirming the rescission of the Pre-Subscription Agreement; and 2.) the Resolution of

the Court of Appeals dated August 17, 2000 which denied the motions forreconsideration filed by the private parties herein, except Masagana Telamart, Inc.

The antecedent facts of the case, as summarized by the Court of Appeals are as follows:

"As one traverses Taft Avenue in Pasay City, one will see the MasaganaCitimall, a commercial complex owned and managed by the First Landlink Asia

Development Corporation (FLADC) (p. 127, 520 and 211,Rollo). It was not

long ago when this commercial complex, then unfinished, was threatened withincompletion when its owner found it in financial distress in the amount of

P190,000,000.00 for being indebted to the Philippine National Bank (PNB), (pp.

520 and 212, Rollo). That was in 1994 (Ibid.)

"FLADC was then fully owned by the Tiu Group composed of David S. Tiu,Cely Y. Tiu, Moly Yu Gaw, Belen See Yu, D. Terence Y. Tiu, John Yu and

Lourdes C. Tiu (p. 211,Rollo). In order to recover from its floundering

finances, the Ong Group composed of Ong Yong, Juanita Tan Ong, Wilson T.Ong, Anna L. Ong, William T. Ong and Julie Ong Alonzo, were invited by the

Tius to invest in FLADC (pp. 211 and 520,Rollo). Hence, the execution of a
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Pre-Subscription Agreement by and between the Tiu and Ong Groups on

August 15, 1994 (pp. 211-216,Rollo).

"By the Pre-Subscription Agreement, both parties agreed to maintain equalshareholdings in FLADC with the Ongs investing cash while the Tius

contributing property (pp. 213-214,Rollo). Specifically, the Ongs were tosubscribe to 1 million shares of FLADC at a par value of P100.00 per share

while the Tius were to subscribe to 549,800 shares more of FLADC at a parvalue of P100.00 per share over and above their previous subscription of

450,200 shares in order to complete a subscription of 1 million shares (Ibid.).

Commensurate to their proposed subscriptions, the Ongs were to payP100,000,000.00 in cash (p. 213,Rollo), while the Tius were to contribute the

following properties by way of separate Deeds of Assignments:

"1.A four-storey building described in Transfer Certificate of Title No.

15587 registered in the name of Intraland Resources and Development

Corporation (a corporation wholly owned by the Tius) and valued atP20,000,000.00;

"2.A 1,902.30 square meter parcel of land covered by Transfer

Certificate of Title No. 15587 in the name of Masagana Telamart, Inc.(also a corporation owned by the Tius) and valued at P30,000,000.00;

and

"3.A 151 square meter parcel of land adjacent to the properties coveredby Transfer Certificate of Title Nos. 132493 and 132494 and valued at

P4,980,000.00 (pp. 212 and 214,Rollo).

"Also for purposes of equality, the parties agreed that 6 directors of

FLADC were to be nominated from the Ong Group, while 5 directorsthereof were to be nominated from the Tiu Group (p. 213,Rollo). It was

also agreed that the positions of President and Secretary of FLADC shall

be held by the Ongs, while the positions of Vice-President and Treasurer

thereof shall be held by the Tius (Ibid.).

"In order to liquidate FLADC's outstanding P190,000,000.00 loan from

the PNB, the parties to the Pre-Subscription Agreement proposed

payment thereof with the P100,000,000.00 cash to be invested by the

Ongs to FLADC and with the available funds of FLADC derived from:

"1.Reimbursement of costs of improvements received from

tenants on the spaces leased to them;

"2.Receipts from reservations to lease; and


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"3.Receipts for deposit or advance rentals from tenants (pp. 213-

214,Rollo).

"In order to comply with the Pre-Subscription Agreement, the necessaryincrease in capital stock of FLADC was applied for and duly approved (pp. 184-

187,Rollo). The Ongs subscribed to 1 million shares thereof at a par value ofP100.00 per share, or. P100,000,000.00 (p. 185, Rollo). Intraland Resources and

Development Corporation executed the requisite Deed of Assignment over a 4-storey building it owned in favor of FLADC and was duly credited with

200,000 shares therefor in FLADC (Ibid; pp., 837-838;Rollo).

"Masagana Telamart, Inc. executed a Deed of Assignment over the 1,902.30square meter property in favor of FLADC and delivered the owner's copy of the

transfer certificate of title of the same as well as the possession thereof to the

latter (pp. 221-226,Rollo). Title over the 151 square meter property was also

transferred in the name of FLADC (pp. 1062-1063,Rollo).

"FLADC's articles of incorporation were also duly amended increasing the

number of its directors from seven (7) to eleven (11), six (6) of which were

nominated by the Ong Group, while the rest were nominated by the Tiu Group(pp. 188-189,Rollo). Later, Wilson T. Ong and Juanita Tan Ong were elected

President and Secretary, respectively, while David S. Tiu and Cely Yao Tiu

were elected Vice-President and Treasurer, respectively (pp. 191-192,Rollo)

"The P190,000,000.00 loan from the PNB was also settled, but not quite in

accord with the provisions of the Pre-Subscription Agreement (pp. 437-441,Rollo). In lieu of the FLADC funds which were supposed to be used as partial

payment for said loan per Pre-Subscription Agreement, the Ongs had to payP70,000,000.00 more aside from their P100,000,000.00 subscription payment,

and the Tius had to advance P20,000,000.00 in cash, which amount was loaned

to them by the former (Ibid.).

"The controversy between the two parties arose when the Ongs refused to creditthe number of FLADC shares in the name of Masagana Telamart, Inc.

commensurate to its 1,902.30 square meter property contribution; also when

they refused to credit the number of FLADC shares in favor of the Tius

commensurate to their 151 square meter property contribution; and when DavidS. Tiu and Cely Y. Tiu were proscribed from assuming and performing their

duties as Vice-President and Treasurer, respectively of FLADC (pp. 132-136,

Rollo). These became the basis of the Tius' unilateral rescission of the Pre-

Subscription Agreement on February 23, 1996 (p. 867, rollo)."2
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On February 27, 1996, the Tius sought the Securities and Exchange Commission (SEC)

confirmation of their rescission of the Pre-Subscription Agreement. Their complaint was

docketed as SEC Case No. 02-96-5269.

On May 19, 1997, after the Tiu Group, Masagana Telamart, Inc., Intraland Resources and

Development Corporation, the Ong Group and FLADC were heard on their respectiveclaims regarding the propriety of the Pre-Subscription Agreement's rescission, SEC

Hearing Officer Rolando G. Andaya, Jr., rendered a decision thereon confirming therescission as follows:

"WHEREFORE, judgment is hereby rendered confirming the rescission of the

Pre-Subscription Agreement, and consequently ordering:

"(a)The cancellation of the 1,000,000 shares subscription of the

individual defendants in FLADC;

"(b)FLADC to pay the amount of P170,000,000.00 to the individual

defendants representing the return of their contribution for1,000,000 shares of FLADC;

"(c)The plaintiffs to submit with the Securities and Exchange

Commission amended articles of incorporation of FLADC to

conform with this decision;

"(d)The defendants to surrender to the plaintiffs TCT Nos. 132493,132494, 134066 (formerly 15587), 135325 and 134204 and any

other title or deed in the name of FLADC, failing in which said

titles are declared void;

"(e)The Register of Deeds to issue new certificates of titles in favor of

the plaintiffs and to cancel the annotation of the Pre-Subscription

Agreement dated 15 August 1994 on TCT No. 134066 (formerly

15587).

"(f)The individual defendants, individually and collectively, their agents

and representatives, to desist from exercising or performing any

and all acts pertaining to stockholder, director or officer of

FLADC or in any manner intervene in the management and

affairs of FLADC;

"(g)The individual defendants, jointly and severally, to return to FLADC

interest payment in the amount of P8,866,669.00 and all interestpayments as well as any payments on principal received from the

P70,000,000.00 inexistent loan, plus the legal rate of interest

thereon from the date of their receipt of such payment, until fully

paid;


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"(h)The plaintiff David Tiu to pay individual defendants the sum of

P20,000,000.00 representing his loan from said defendants plus

legal interest from the date of receipt of such amount.

"SO ORDERED." 3

On motion of the Ong Group, the aforequoted decision was later partially reconsidered inan omnibus order issued by SEC Hearing Officer Manolito S. Soller on November 24,

1997, the decretal portion of which in part reads:

"WHEREFORE, premises considered, judgment is hereby rendered as follows:

"1.The Decision of this Commission dated May 19, 1997 is partially

reconsidered only insofar as the investment amounting to P70 million which is

hereby declared not as premium on capital stock but a liability of FLADC oradvances of the defendants made in favor of FLADC, and that the interest paid

on account thereof is hereby declared legal and valid;

xxx xxx xxx

"SO ORDERED." 4

Both the Ong and Tiu Groups appealed the aforequoted Omnibus Order to the SEC en

banc. Their respective appeals were docketed as SEC Case Nos. 598 and 601. OnSeptember 11, 1998, the SEC en banc issued an order, the decretal portion of which

reads:

"WHEREFORE, judgment is hereby rendered CONFIRMING the omnibusOrder dated 24 November 1997 insofar as it confirms the rescission of the Pre-

Subscription Agreement and REVERSING the same insofar as it held that the

seventy million (P70 M) paid by the Ong Group over and above the par value ofthe one million (1,000,000) shares of stocks of FLADC which they had

subscribed as loan and not premium.

"Accordingly,

"1.The subscription contract entered into by the Ong group and thecorporation is hereby declared rescinded, the latter is ordered to

cancel the one million (1,000,000) shares subscription of the OngGroup in FLADC, and FLADC shall return the amount of onehundred and seventy million pesos (P170 M) to the Ong Group;

"2.The Tiu Group shall pay the twenty million pesos P20 M) to the Ong

group which was loaned to them by the latter;
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"3.The Ong Group, individually and collectively, their agents and

representatives, are hereby ordered to desist from exercising or

performing any and all acts pertaining to stockholders, directorsor officers of FLADC or in any manner intervening in the

management and affairs of FLADC;

"4.The Ong Group, jointly and severally, are hereby ordered to return to

FLADC the interest payment on the seventy million pesos(P70M) in the amount of eight million and eight hundred sixty-

six thousand, and six hundred sixty-nine pesos (P8,866,669.00)

and all additional interest payments thereafter, as well as anypayments on the principal received for the seventy million pesos

(P70M) inexistent loan.

"No pronouncement as to cost and damages.

"SO ORDERED." 5

From the said Order of the SECEn Banc, the Ongs appealed to the Court of Appeals, by

way of a petition for review under Rule 43 of the 1997 Rules of Civil Procedure.

On October 5, 1999, the Court of Appeals issued the Decision subject of these petitions

for review, the decretal portion of which reads:

"WHEREFORE, the Order dated September 11, 1998 issued by the Securitiesand Exchange CommissionEn Banc in SEC AC CASE NOS. 598 and 601

confirming the rescission of the Pre-Subscription Agreement dated August 15,

1994 is hereby AFFIRMED, subject to the following MODIFICATIONS:

"1.The Ong and Tiu Groups are ordered to liquidate First Landlink AsiaDevelopment Corporation in accordance with the following cash and

property contributions of the parties therein.

a.Ong Group P100,000,000.00 cash contribution for one (1) million

shares in First Landlink Asia Development Corporation at a parvalue of P100.00 per share;

b.Tiu Group:

1.)P45,020,000.00 original cash contribution for 450,200 shares in

First Landlink Asia Development Corporation at a parvalue of P100.00 per share;

2.)A four-storey building described in Transfer Certificate of Title

No. 15587 in the name of Intraland Resources and

Development Corporation valued at P20,000,000.00 for


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200,000 shares in First Landlink Asia Development

Corporation at a par value of P100.00 per share.

3.)A 1,902.30 square meter parcel of land covered by TransferCertificate of Title No. 15587 in the name of Masagana

Telamart, Inc. valued at P30,000,000.00 for 300,000 sharesin First Landlink Asia Development Corporation at a par

value of P100.00 per share.

"2.Whatever remains of the assets of the First Landlink Asia Development

Corporation and the management thereof is hereby ordered transferred to

the Tiu Group.

"3.First Landlink Asia Development Corporation is hereby ordered to pay theamount of P70,000,000.00 that was advanced to it by the Ong Group

upon the finality of this decision. Should the former incur in delay in the

payment thereof, it shall pay the legal interest thereon pursuant toArticle 2209 of the New Civil Code.

"4.The Tius are hereby ordered to pay the amount of P20,000,000.00 loaned

them by the Ongs upon the finality of this decision. Should the former

incur in delay in the payment thereof, it shall pay the legal interestthereon pursuant to Article 2209 of the New Civil Code.

"SO ORDERED." 6

The Court of Appeals arrived at the said decision after finding that rescission and specific

performance as provided in Art. 1191 of the New Civil Code, may alternatively beavailed of in this case. The question is who between the contending parties may avail of

the alternative remedies when both of them violated the provisions of the contract, their

Pre-subscription Agreement. The Court of Appeals also found that the Ongs were indeed

preventing the Tius from assuming the duties and responsibilities of the position of Vice-

President and Treasurer of FLADC. The Ongs also violated the Pre-subscription

agreement when they did not credit to Masagana Telamart, Inc. the number of shares in

FLADC commensurate to its property contribution (1,902.30 sq. m.), despite the

execution by the Tius of the Deed of Assignment over said property. The Court of

Appeals also stated that the records also reveal the following violations on the Tius' part:

1.) While there is, on record, a Deed of Assignment over the 151 sq. m. parcel of land infavor of FLADC, said Deed was not executed by the Tius in favor of FLADC but by the

Lichaucos; and 2.) the Tius did not turn over to the Ong Group the entire amount of

FLADC's funds in violation of the Pre-Subscription Agreement which stipulated that the

former grants to the latter, the management and administration of the regular business of

FLADC upon the agreement's execution. The Court of Appeals also found that the Tius

were diverting rentals due to FLADC into their own MATTERCO account which rentals

appear to have not been remitted to FLADC up to now. Considering the foregoing, the


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Court of Appeals concluded that the two groups can no longer work harmoniously

together and deemed it proper to confirm the rescission and for the Ongs and the Tius to

liquidate FLADC in accordance with their respective cash and property contribution. The

Court of Appeals also resolved the question of the nature of the P70 M paid by the Ongs

in excess of 1 million shares they acquired from FLADC, ruling that the same is an

advance made by the Ongs in favor of FLADC, and not a premium or paid-in surplus onthe actual value of 1 million shares, and that no interest thereon may be awarded as there

is no evidence on record which shows that at the time the P70M was advanced to

FLADC, the parties agreed that the same shall earn interest.

On August 17, 2000, the Court of Appeals issued a Resolution which denied the private

parties' motions for reconsideration.

The Ong Group and the Tiu Group both filed their respective petitions for review subjectof these consolidated cases.

Except for the fourth assigned error in the Ongs' petition (G.R. No. 144476) and sub-

paragraphs (vi) and (vii) of the second assigned error in the Tius' petition (G.R. No.

144629), which are well taken, We find both petitions to be without merit.

In their Petition, docketed as G.R. No. 144476, the Ongs raise the following assignment

of errors:

"I

"The Court of Appeals erred in ruling that the 'Pre-Subscription Agreement' ofthe parties dated August 15, 1994 may be rescinded under Article 1191 of the

New Civil Code.

"a.Rescission is applicable only to reciprocal obligations and the `Pre-

Subscription Agreement' does not provide for reciprocity; hence,the remedy of rescission is not available.

"b.Rescission is not applicable when 'rights' over the subject matter of

the rescission have been acquired by third persons.

"c.Rescission is only applicable in case of substantial and fundamentalbreach.

"II

"The Court of Appeals erred in finding that the Ongs violated the `Pre-

Subscription Agreement' in the following manner:


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"a.The Ongs prevented the Tius from assuming the duties and

responsibilities of the Vice-President and Treasurer of FLADC

by not providing them with adequate offices.

"b.By not crediting Masagana Telamart, Inc. with 300,000 shares

corresponding to the value of the 1,902.30 square metersproperty covered by TCT No. 15587.

"III

"The Court of Appeals erred in confirming rescission of the 'Pre-SubscriptionAgreement' dated August 15, 1994 and the 'liquidation' of FLADC 'for practical

reasons,' and to prevent `further squabbles and numerous litigations,' reasons

unknown in law.

"IV

"The Court of Appeals erred in not awarding interest on the loan of respondent

David S. Tiu from petitioner Ong Yong in the amount of P20 million and the

P70 million advanced by the Ongs to FLADC.

"V

"The Court of Appeals erred in not awarding costs and damages to the Ongs."

On the first issue, the Court of Appeals did not err in ruling that the "Pre-SubscriptionAgreement" of the parties dated august 15, 1994 may be rescinded under Article 1191 of

the New Civil Code.

In paragraph (a) of the first assigned error, the Ongs allege that rescission is applicable

only to reciprocal obligations and the "Pre-Subscription Agreement" does not provide for

reciprocity, hence, the remedy of rescission is not available. The Ongs cited the case of

Songcuan vs. IAC, (191 SCRA 28) to illustrate their point that "As in the Songcuan case,

there are here two (2) separate and distinct obligations each independent of the other

i.) the obligation to subscribe to, and to pay, 50% of the increased capital stock of

FLADC; and ii.) the obligation to install the Ongs and the Tius as members of the Board

of Directors and to certain corporate positions, but only after the Ongs and the Tius have

subscribed each to 50% of the increased capital stock of FLADC."

In this petition, in lieu of Art. 1191, 7 the Ongs invoke Articles 1156 and 1159 of the

New Civil Code which state

"Art. 1156.An obligation is a juridical necessity to give, to do or not to do.


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"Art. 1159.Obligations arising from contracts have the force of law between the

contracting parties and should be complied with in good faith."

and that should there be any violation, those who failed to fulfill their obligations

should be required to perform their obligations under the agreement.

Contrary to the Ongs' assertion, the Songcuan case does not apply squarely to this case.In the Songcuan case, this Court ruled that Art. 1191 to rescind the right of the Alviars to

repurchase does not apply because their corresponding obligations can hardly be called

reciprocal because the obligation of the Alviars to lease to Songcuan the subject premise

arises only after the latter had reconveyed the realties to them. On the other hand, in the

instant case, the obligations of the two (2) groups to pay 50% of the increased capital

stock of FLADC and to install them as members of the Board of Directors and to certaincorporate positions are simultaneous and arise upon the execution of the pre-subscription

agreement.

The Ongs illustrate reciprocity in the following manner: In a contract of sale, the

correlative duty of the obligation of the seller to deliver the property is the obligation of

the buyer to pay the agreed price. 8

In the case at bar, the correlative obligation of the Tius to let the Ongs have and exercise

the functions of the positions of President and Secretary is the obligation of the Ongs to

let the Tius have and exercise the functions of Vice-President and Treasurer. In this

regard, the Court of Appeals aptly stated, and we quote:

"It cannot be denied that the Pre-Subscription Agreement contains reciprocal

obligations owing to the fact that the parties thereto agreed to maintain paritynot only in their shareholdings in FLADC but also with regard to their standing

in FLADC (pp. 214, 662, 708-710, 715-716, 1914,Rollo). In fine, each party.has the obligation to remain equal with the other on every matter pertaining to

FLADC. Herein lies the reciprocity in the Pre-Subscription Agreement." 9

Moreover, the Ongs are now estopped from denying the applicability of Art. 1191 to the

present controversy. As correctly observed by the Court of Appeals in its Resolution

dated August 17, 2000, which denied the Ongs' motion for reconsideration:

"Petitioners keep on harping for the Pre-Subscription Agreement's specific

performance yet they also actually failed to give a legal basis therefor. Whythen must they deny that the Tiu Group has a right to ask for rescission of their

agreement per Article 1191 of the Civil Code (pp. 1141-1145,Rollo) when they

themselves invoke the same law as basis for asking the specific performance of

the same agreement (pp. 1156-1159,Rollo)" 10
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In paragraph (b) of the first assigned error, the Ongs allege that rescission is not

applicable when "rights" over the subject matter of the rescission have been acquired by

third persons. The Ongs refer to Arts. 1191 and 1385. 11

The Ongs argue that the payment on subscription of P100 million by the Ongs is not to

the Tius and the payment of P54.98 million by the Tius is not to the Ongs, but toFLADC, the corporation, which is distinct and separate from the Ongs and the Tius

notwithstanding the fact that they may be the only stockholders. Pursuant to Arts. 1191and 1385, continue the Ongs, the payment made by the two (2) groups have come to be

legally owned and possessed by FLADC, the corporation, a third person, who did not act

in bad faith. So that any alleged violation of the Pre-Subscription Agreement would have

no consequence on the respective amounts paid by the two (2) groups on their

subscription to FLADC, a third party.

We are not convinced.

The reliance of the Ongs on Article 1385 is misplaced. We agree with the Tius that the

things which are the object of the Pre-Subscription Agreement one million shares of

stock subscribed to by the Ong Group, the additional 549,800 shares subscribed to by the

Tius, and the corporate positions mentioned above are not in the possession of thirdpersons, but are in the possession of the parties to the Pre-Subscription Agreement. In any

case, FLADC is not a third person in relation to the Pre-Subscription Agreement though

not named as a party. FLADC is deemed a party to the agreement by virtue of

stipulations pour autrui clearly and deliberately conferring on it a favor or benefit which

it subsequently accepted. (Art. 1311, Civil Code) 12 Such benefit was in the form of the

payments made by the parties for their subscription to shares of stock in FLADC, whichFLADC accepted.

In paragraph (c) of the first assigned error, the Ongs allege that rescission is only

applicable in case of substantial and fundamental breach. The Ongs contend that the

substantial and fundamental aspects of the Pre-Subscription Agreement between the two(2) groups are their commitment to subscribe to their respective numbers of shares and to

pay corresponding amount thereof. The Ongs say that they have accomplished their part

but not the Tius; and that their alleged breach of the agreement in their alleged failure to

provide adequate offices to David Tiu as Vice-President and Cely Yao Tiu, as Treasurer,

is hardly substantial and fundamental because stockholders become Vice-President or

Treasurer of a corporation by election, not by virtue of office facilities he/she may havebeen provided.

The Ongs' contention is without merit. Suffice it to state that what makes a stockholder an

officer of a corporation is not simply the fact of his election but, more important, his

ability to perform the powers and functions of that office. As will be discussed in the next

assigned error, the Ongs indeed prevented the Tius from exercising the powers and
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functions of their office. We rule, therefore, that such breach of the agreement on the part

of the Ongs is substantial and fundamental.

On the second assigned error, the Court of Appeals did not err in finding that the Ongs

violated the "Pre-Subscription Agreement" (a.) when it prevented the Tius from assuming

the duties and responsibilities of the Vice-President and Treasurer of FLADC by notproviding them with adequate offices, and (b.) when it did not credit Masagana with

300,000 shares corresponding to the value of its 1,902.30 sq. m. property contribution.

On paragraph (a), this Court takes exception to the phrase "by not providing them with

adequate offices." This is not the only reason but only one of the reasons cited by the

Court of Appeals in concluding that the Ongs violated the pre-subscription agreement

when they prevented the Tius from assuming the duties and responsibilities of the Vice-

President and Treasurer of FLADC. The discussion made by the Court of Appeals on this

point is correct, very clear and enlightening, and we quote:

"A reading of the records, which to date comprises more than 2,100 pages,

reveal that the Ongs were indeed preventing the Tius from assuming the duties

and responsibilities of the position of Vice-President and Treasurer of FLADC.This is highlighted by the fact that the Ongs' attempt to provide David S. Tiu

and Cely Y. Tiu with executive offices before the filing of the complaint a quo,

was merely half-hearted as evidenced by the delay in providing for said officesdespite repeated demands therefor (pp. 844-845, 862-868, 877-878, 895-896,

999-1000,Rollo), and by the need to pass a board resolution when none is

necessary in order to provide executive offices for the FLADC President and hisstaff (pp. 936-937,Rollo). Another fact which shows that the Tius were beingprevented from assuming their responsibilities is the criminal case for theft filed

by the Ongs against David S. Tiu (pp. 856-859,Rollo). Why must there be a

need for the Tius to act surreptitiously in order to have a copy of FLADC'srecords made if they were not actively being prevented from inspecting the

same? Anyway, for all intents and purposes, the Ongs admit that they were

preventing the Tius from assuming the responsibilities of Vice-President andTreasurer of FLADC. This was made via their reply to the Tiu's letter rescinding

the Pre-Subscription Agreement, which in part reads:

'As to your contention that the ONG GROUP has failedto accord you, the elected Vice-President of FLADC, and yourwife, the elected treasurer of FLADC, the powers vested in you

by the by-laws, allow me to remind you that in accordance with

the Pre-Subscription Agreement, 'the First Party (TIU GROUP)hereby grants to the Second Part (ONG GROUP) the

management and administration of the regular business of the

corporation upon the execution of this documents (sic).'


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Notwithstanding this fact, the ONG GROUP has always made

you a cosignatory to the bank accounts of the corporation;

however, to the great prejudice and damage of the corporationyou have, more often than not, either purposely delayed or

refused to affix your signature to checks in payment for the valid

obligations of the corporation. Moreover, from the start, thecorporation has given your wife, who is the Treasurer of

FLADC, a space in our office but she has seldom come to hold

office there. Despite this, we have already acceded to yourdemand that your wife be given a room in lieu of the space

provided for her. Furthermore, pursuant to the by-laws, both the

Vice-President and the Treasurer are to perform duties which

may be assigned to them by the Board of Directors and/or thePresident. (p. 2049,Rollo; underscoring supplied)'

"The Pre-Subscription Agreement provides that the position of Vice-President

and Treasurer of FLADC shall be nominated from the Tiu Group (p. 213,Rollo). Despite the provision in the agreement turning over the management and

administration of FLADC to the Ong Group (p. 215;Rollo), there is nothing in

the agreement which states that the elected Vice-President and Treasurer of

FLADC cannot or must not be allowed to assume the responsibilities of theirrespective office. From the tenor of the aforequoted reply to the Tius' letter of

rescission, it is evident that the Ongs have reduced the positions of Vice-

President and Treasurer of FLADC to mere figure heads."13

The Court of Appeals did not err in arriving at the same conclusion like the three (3)

tribunals below (Hearing Officer Andaya, Hearing Officer Soller and the SECEn Banc),

that the Ongs excluded the Tius from the corporation by preventing them fromparticipating in its operation and financial affairs.

In paragraph (b) of the second assigned error, the Ongs maintain that their group cannot

be faulted for not crediting Masagana with 300,000 shares corresponding to the value of

its 1,902.30 sq. m. property contribution, because the Deed of Assignment over the said

property executed by Masagana in favor of FLADC was patently incomplete (not dated,no instrumental witness signed the Deed and the Acknowledgment was not executed,

because the Tius asked that the execution of the document be not completed) and that the

necessary documentary stamp taxes, and capital gains and transfer taxes had not been

paid, such that FLADC could not process with the SEC the application regarding theexchange of the said property for shares of stock in the corporation.

The issue boils down to the question of "Who has the obligation to pay the taxes incident

to the assignment?"

We rule that FLADC, the assignee, has the obligation to pay the taxes incident to the

assignment. The Court of Appeals did not err in holding that:


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". . . The provisions on this matter in the Pre-Subscription Agreement is clear

that upon the execution of the Deed of Assignment thereon in favor of FLADC,

Masagana Telamart, Inc. shall be credited with the number of shares in FLADCcommensurate to the value thereof of P30,000,000.00 (see paragraphs 14-15, 17

of the Pre-Subscription Agreement, p. 214,Rollo). Since the Deed of

Assignment over this property has already been executed in favor of FLADC,and the owner's duplicate of the title and possession thereof have already been

delivered to FLADC (pp. 221-226, 563,Rollo), the Ongs should have credited

300,000 shares of FLADC at a par value of P100.00 per share in the name ofMasagana Telamart, Inc. The transfer of the title to said property in FLADC's

name is another matter which is governed by the Deed of Assignment itself and

not the Pre-Subscription Agreement (pp. 221-222,Rollo)." 14

The Deed of Assignment stipulates:

"The ASSIGNEE (FLADC) hereby accepts said assignment and assumes allthe

obligations of performing allthe terms and conditions including but not limitedto, the transfer of the said parcel of land in the name of First Landlink Asia

Development Corporation within a reasonable time." (Emphasis supplied)

Said stipulation does not enumerate nor exclude any obligation on the part of the

assignee for purposes of transferring the property in its name. Instead, the Deed

stipulates in simple language "all the obligations of performing all the terms and

conditions including, but not limited to, the transfer of the said parcel of land in the

name of (FLADC)." It imposes no obligation at all on the part of the assignor for

purposes of transferring the parcel of land in the name of FLADC.

In the interpretation of contracts, "if the terms of a contract are clear and leave no doubtupon the intention of the contracting parties, the liberal meaning of its stipulation shall

control." (Art. 1370, Civil Code). Thus, the FLADC should shoulder all obligations, such

as taxes, legal fees, notarial fees and expenses of registration, for the conveyance to be

registered and the title to the property placed in the name of FLADC.

If the Ongs find ambiguity in the said stipulation in that the same allegedly does not

provide that FLADC would pay for the taxes arising from the assignment, and that it

should have been expressly provided in the deed of assignment, such alleged ambiguity

can only be resolved against the Ongs for it was their lawyer, the late Atty. John Uy, who

prepared the Deed of Assignment. 15Where the provisions of a contract are ambiguous,such ambiguity must be construed against the party who drafted the same. 16

At any rate, the intention of the parties could not have been to impose on Masagana the

obligation to pay said taxes. As explained by the Tius in their Comment

". . . for such imposition is not consistent with the fundamental concept of'equality' on which the Pre-Subscription Agreement is based. If Masagana were


17/31

to pay the taxes and other expenses for the transfer of its 1,902.30 sq. m.

property contribution to FLADC, Masagana would, in effect, be paying more

than P30 million, the agreed valuation of the said property contribution, for300,000 shares of stock in FLADC. Thus, assuming the Ong Group's

computation of Masagana's net gain on the assignment is correct, i.e., P14

million, and Masagana were to pay 35% of P14 million (P4.9 million) in taxesfor such assignment, in addition to the amount of P570,690.00 in documentary

stamp taxes, Masagana would be paying P35,470,690.00 for 300,000 shares of

stock in FLADC, instead of only P30 million. This could not have been the

intention of the parties." 17

The Ongs presented as proof that the Tius acknowledged their liability for the payment of

the taxes, the following letter-reply dated April 27, 1995 of Mr. David Tiu to Mr. Wilson

T. Ong's request for him to remit payment for documentary stamp tax:

"With respect to your request for the remittance of P570,690.00 representing 1-

1/2% of documentary stamps on the assignment of the land with an area of1,902.30 sq. m. described in TCT No. 134066, we are willing to remit the same

after our proposed meeting, together with Atty. John Uy and Atty. A. Santosregarding the possible tax liability which we have earlier discussed with you."18

The contents of the said letter were satisfactorily explained by Mr. Tiu as simply a

diplomatic way of denying any tax liability on the transfer, precisely the reason behind

the need for a meeting between the lawyers of the two (2) groups:

"Hearing Officer:

"Okay, you may explain that.

"AIn this letter that I mentioned, April 27, this is only my diplomatic way of

denying or telling the Ong Group that it is not part of our agreement that

I will pay this amount. Because it's clearly written in the Deed ofAssignment that it is the assignee (that) who will pay the documentary

stamps and other taxes to be able to transfer the parcel of land in the

name of FLADC. That is why it is a meeting with both our lawyers."(TSN, 15 April 1996, p. 34)

"Atty. Santos:

"QIn that letter, you made mention of a meeting to be held between Atty. Santos

and Atty. Uy. The Atty. Santos being referred there, is this Atty. Santos,

this representation?

"AYes, Sir, you are the lawyer I'm referring. (TSN, 15 April 1996, pp. 43-44) 19


18/31

Sub-paragraph (c) of the second assigned error, that the Tius, not the Ongs, violated the

Pre-Subscription Agreement, shall be discussed together with the Tius' Assignment of

Errors in G.R. No. 144629.

On the third assigned error, the Ongs allege that "the Court of Appeals erred in

confirming rescission of the Pre-Subscription Agreement and the liquidation of FLADC

'for practical reasons,' and to prevent 'further squabbles and numerous litigations,' reasons

unknown in law." Allegedly, it is an error for the Court of Appeals to order the transfer to

the Tiu Group whatever remains of the assets of the FLADC and the management

thereof, upon the return to each group of their respective cash and property contribution.

The Ongs maintain that the two (2) groups' payment for the shares of stocks belong to the

corporation, no longer to the Ongs or Tius; and even if the Ongs and Tius were the only

stockholders, they do not have the authority to transfer cash or properties of FLADC to

themselves, for that would be misappropriation. The Ongs further cite Sec. 122 of theCorporation Code to support their claim that the order of the Court of Appeals for the

return of the parties' contribution (distribution of FLADC assets, in the words of the

Ongs) is prohibited, thus:

"Sec. 122.Corporate Liquidation. . . .

"Except by decrease of capital stock and as otherwise allowed by this

Code, no corporation shall distribute any of its assets or property exceptupon lawful dissolution and after payment of all its debts and liabilities."

The Ongs also question the order of the Court of Appeals to transfer to the Tius theMasagana Citimall (the asset which would remain after moving out cash and property to

the Ongs and Tius), "the corporation's priceless jewel," when it was they who caused the

venture to flourish because of their P190 million contribution and their management

thereof.

We find the Ongs' contentions to be without merit.

The Tius counter, among others, that: "When the Ong Group invested their P170 million

for 50% of the shares of FLADC, and loaned Mr. Tiu P20 million to enable FLADC to

pay the P190 million PNB loan, the mall leasing business was already in place, and allthe Ong Group had to do was continue the administration of the mall already started by

the Tiu Group, and oversee the collection of rentals which were supposed to be remittedto the Treasurer, but which the Ong Group refused to do. For the Ong Group to disregard

the valuable contributions of the Tiu Group and monopolize the credit for FLADC's

success is plain arrogance."


19/31

As discussed in the first assigned error, the Court of Appeals correctly confirmed the

rescission of the Pre-Subscription Agreement on the basis of Art. 1191 of the Civil Code.

It could have relied on the said provision and nonetheless stood on valid ground. It,

however, judiciously took into account the special circumstances of the case and further

justified its decision confirming the rescission of the Pre-Subscription Agreement on the

basis of its perception that the two groups "can no longer work harmoniously together"and that "to pit them together in the management of FLADC will only result to further

squabbles and numerous litigation."

Moreover, what the Court of Appeals ordered was not corporate liquidation upon lawful

dissolution under Sec. 122 of the Corporation Code, as cited by the Ong Group. The

Court of Appeals clarified in its Resolution promulgated on August 17, 2000 that "in

ordering liquidation, the Court does not mean its dissolution as provided in the

Corporation Code." 20The prohibition, therefore, under Section 122 against distributionof assets or properties of the corporation does not apply.

As a legal consequence of rescission, the order of the Court of Appeals to return the cash

and property contribution of the parties is based on law, hence, cannot be considered an

act of misappropriation. For how can the rescission of the Pre-Subscription Agreement beimplemented without returning to the two groups whatever they delivered to the

corporation in accordance with the Agreement?

With regard to the order of the Court of Appeals transferring to the Tiu Group whatever

remains of the assets of FLADC and the management thereof, the same is but an

inevitable consequence of the rescission of the Pre-Subscription Agreement. Restoration

of the parties tostatus quo ante dictates that the building constructed on the two (2)existing lots of FLADC, the remaining asset of FLADC, be transferred to the Tiu Group.

Thestatus quo ante immediately prior to the execution of the Pre-Subscription

Agreement was that the Tius, then wholly owning FLADC, had control and custody over

this remaining asset.

On the fourth assignment of error, we find the same to be well taken. Indeed, the Court of

Appeals erred in ruling that: "Since no period was stipulated for the return thereof (the

P20 million loan extended to the Tius and the P70 million the Ongs advanced to

FLADC), the Court resolves to fix the same upon the finality of this Decision (See

Article 1197, Civil Code 21). Failure of the Tius to pay the same upon the finality of this

decision shall make them liable for legal interests thereon pursuant to Article 2209 of theNew Civil Code."

We agree with the Ongs that since no period was stipulated for the return of the P20

million loan they extended to the Tius, the same should earn 12% interest per annum and

the period of payment of interest thereon should reckon from the time of judicial (or
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extrajudicial) demand, which was, from April 23, 1996, when the Ongs filed their

Answer, and not upon the finality of this Decision.

InEastern Shipping Lines, Inc. vs. Court of Appeals, 22and affirmed in Gomez vs. Court

of Appeals (Sept. 21, 2000, G.R. No. 120747) and Catungal vs. Hao, (March 22, 2001,

G.R. No. 134972), among other cases, this Court discussed at length the rate of interest,as well as the accrual thereof in awarding interest in the concept of actual and

compensatory damages and held that:

"1.When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that

which may have been stipulated in writing. 23Furthermore, the interest dueshall itself earn legal interest from the time it is judicially demanded. In the

absence of stipulation, the rate of interest shall be 12% per annum to be

computed from default, i.e., from judicial or extrajudicial demand under and

subject to the provisions of Article 1169 24of the Civil Code."

However, we do not deem it fit that the ruling in Eastern Shipping Lines, Inc. should also

apply to the P70 million that the Ongs advanced to FLADC. This is because the Ongs

themselves, in the Board Resolution (Exhibit "16") that was approved in the meeting of

the Board of Directors of FLADC held on June 19, 1996 (during which the Tiu group

was absent), authorized payment of 10% interest per annum on the said P70 million.

Thus, as to the P70 million, the FLADC should be made to pay only 10% interest per

annum and not 12%, the period to be reckoned from June 19, 1996.

The matter of why the P70 million paid by the Ongs should be adjudged as an advance

and not a premium or paid-in surplus shall be taken up in G.R. No. 144629, the petitionfiled by the Tius.

On the fifth assigned error, the Ongs allege that the Court of Appeals erred in not

ordering the Tius to pay costs and damages to the Ongs for the filing of this baseless and

unwarranted suit. Considering all the foregoing which shows that the case filed by the

Tius for confirmation of the rescission of the pre-subscription agreement, is meritorious,

it is obviously no longer necessary to discuss this issue.

In their Petition, docketed as G.R. No. 144629, the Tius raise the following Assignment

of Errors:

"I

"The Court of Appeals erred in ordering the liquidation of FLADC instead of

merely ordering the restitution of the parties' respective investments.

"II
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"The Court of Appeals erred in relaxing the application of the laws and

jurisprudence on rescission of reciprocal obligations and in ordering the

liquidation of FLADC obviously on the basis of its mistaken perception

"i)That in 1994, prior to the entry of the Ong Group in FLADC, the

Masagana Citimall was threatened with incompletion;

"ii)That at that time, FLADC was in financial distress in the amount of

P190 million for being indebted to PNB;

"iii)That the Tiu Group invited the Ong Group to come in asstockholders for FLADC to recover from its floundering

finances;

"iv)That the Pre-Subscription Agreement was entered into by the parties

in order to rescue FLADC from financial distress, i.e., for the

purpose of settling its P190 million indebtedness to PNB;

"v)That under the circumstances, Masagana Citimall will not be what it

is today were it not for the money that the Ong Group invested;

"vi)That the Tiu Group violated the Pre-Subscription Agreement sincethe deed of assignment over the 151 sq. m. lot was not executed

by the Tiu Group but by the Lichaucos in favor of FLADC;

hence, the Tiu Group cannot be credited with the number ofshares commensurate to the value of said lot and will not,

therefore, be able to equal the Ong Group's one million

subscription in FLADC;

"vii)That the Tiu Group were pulling a fast one on the Ong Group bytheir 'alleged' 151 sq. m. property contribution in exchange for

49,800 shares in FLADC;

"viii)That the Tiu Group did not turn over to the Ong Group the entire

amount of FLADC funds;

"ix)That the Tiu Group, by unilaterally rescinding the Pre-SubscriptionAgreement, are now trying to oust the Ong Group from enjoying

the fruits of their P190 million investment in FLADC, and thatthis is ingratitude at its height;

"x)That the Tiu Group were diverting rentals due to FLADC into their

own MATERRCO account which rentals appear to have not been

remitted to FLADC up to now; and


22/31

"xi)That the P70 million paid by the Ong Group was, an advance and not

a premium on capital."

On their first assigned error, the Tius allege that the Court of Appeals erred in orderingthe liquidation of FLADC instead of merely ordering the restitution of the parties'

respective investments. The Tius continue: "To rescind is 'to declare a contract as though

it never were.' It is not merely to terminate it and release the parties from further

obligations to each other but to abrogate it from the beginning and restore parties to theirrelative position which they would have occupied had no contract ever been made

(Ocampo vs. Court of Appeals, 233 SCRA 551)." 25The Tius also contend that the

liquidation of the profits of FLADC and the distribution thereof to the parties offend the

very essence of rescission which merely requires mutual restoration in consonance with

the basic principle that when an obligation has been extinguished, it is the duty of the

court to require the parties to surrender whatever they may have received from the otherso that they may be restored, as far as practicable, to their original situation. In support

thereof, the Tius cite the following cases:Floro Enterprises, Inc. vs. Court of Appeals,

249 SCRA 354 [1995], citingAgustin vs. Court of Appeals, 186 SCRA 375 [1990];

Magdalena Estate, Inc. vs: Myrich, 71 Phil., 344 [1941];Po Pauco vs. Siguenza, et al.,

49 Phil. 404 [1926].

On the other hand, the Ongs, in their Comment also question the order of the Court of

Appeals in its Decision for the rescission and liquidation of FLADC and for the return to

the Ongs of their P190 million, and nothing more. The Ongs ask what became of the

profits earned and the additional assets acquired by FLADC through the efforts of the

Ongs, and the P190 million they invested in FLADC.

To the above queries of the Ongs, it is precisely for those reasons that the Court of

Appeals in its Resolution of August 17, 2000, clarified thus:

". . . While the Court in the case at bench ordered the rescission of the Pre-

Subscription Agreement, it did not, however, order restitution of what the

parties contributed pursuant thereto. What the Court ordered was the liquidation

of FLADC in accordance with the actual amount of investment each party madein FLADC (pp. 18-19 and 24 of Decision; pp. 1045-1046 and 1050,Rollo).

Restitution and liquidation are two different things. Liquidation includes both

the profits and losses each party derived within the duration of their respectiveinvestment (see Sibal, Philippine Legal Encyclopedia, p. 531; Black's Law

Dictionary, p. 839; De Leon, The Corporation Code of the Philippines

Annotated, 1997 ed., p. 705, citing 16 Fletcher, p. 658). Contrary therefore toWillie Ong's contention that the Ongs will simply receive a return of their

money without any fruits or interest, the decision assures them that they (the


23/31

Ong and Tiu Groups) will have a bountiful return of their respective

investments derived from the profits of the corporation."26

With regard to the Tius' allegations, the same are without merit. As cited by the Tius

themselves, "it is the duty of the court to require the parties to surrender whatever they

may have received from the other so that they may be restored, as far as practicable, totheir original situation." Restoration of the parties to their relative position which they

would have occupied had no contract ever been made is not practicable nor possible

because we cannot turn back the hands of time when the mall was only "nearing

completion" in 1994, when the mall was not fully tenanted yet and they had an existing

loan of P190 million with PNB with an interest of 19% per annum. But the MasaganaCitimall is now completely constructed/finished, the P190 million loan fully paid without

their having to pay enormous interest, and the Tius cannot deny that the Ongs are partly

to be credited for the success of the venture. What the Tius want the Court to order would

have been fair and just had there been no fault on their part as would be discussed in the

second assigned error, and had they come to Court with clean hands because he whocomes to Court must come with clean hands. 27If, as the Tius espouse, the Court wouldsimply order the return of the P190 million of the Ongs, then, the Tius would be unjustly

enriched at the expense of the Ongs. Under the law, no one shall unjustly enrich himself

at the expense of another. "Niguno non deue enriquecerse tortizamente condano de otro."

On their second assigned error, the Tius allege that the Court of Appeals erred in relaxingthe application of the laws and jurisprudence on rescission of reciprocal obligations and

ordering the liquidation of FLADC on the basis of its mistaken perception.

Subparagraphs i-iv, and ix, being interrelated, shall be discussed jointly. The Tius allege

that contrary to the Court of Appeals' findings:

i.)In 1994, prior to the entry of the Ong Group in FLADC, the Masagana

Citimall was never threatened with incompletion;

ii.)Prior to the execution of the Pre-Subscription Agreement, FLADC was

not in financial distress;

iii.)The Tiu Group invited the Ong Group to come in as stockholders of

FLADC to expand the company's leasing business;

iv.)It is not true that the Pre-Subscription Agreement was entered into by

the parties in order to rescue FLADC from financial distress, i.e.,

for the purpose of settling its P190 million indebtedness to PNB;


24/31

ix.)It is the Tiu Group, not the Ong Group, who were ousted from

enjoying the fruits of their investment in FLADC, hence, it is the

Tiu Group who are the victims of ingratitude;

We are not persuaded. The Court of Appeals did not have any mistaken

perception.

Granting that the Masagana Citimall was not threatened with incompletion in

1994, it would have gone off to a bad start had not the Ongs come in with P190 million

which was used to pay the Tius' loan with the PNB. The said loan would have meant

payment of 19% interest per annum. As presented by the Ongs in their Comment: 28

"d.As of July 18, 1994, FLADC had already drawn a total amount ofP188,254,599.77 from the credit line and was paying interest thereon at the rate

of 19.00% per annum or close to P3 Million every month.

"From the above-mentioned facts, assuming that FLADC would no longer draw

on its remaining credit line to complete the building, the following indisputableconclusions may be reached:

"a.At 19% interest per annum, the interest payments alone for the

P188,254,599.77 existing loan of FLADC with the PNB would be equivalent to

the following amount:

P35,768,373.96 on an annual basis;

P8,942,093.49 on a quarterly basis; and

P2,980,697.03 on a monthly basis.

"xxx xxx xxx

"c.For the same P190 Million loan, and in addition to the above-mentioned

interest payments, the semi-annual amortization for the PNB loan would havebeen P18,825,459.97 per payment and should have been payable as follows:

April 29, 1996 - initial payment

October 29, 1996 - 2nd payment

April 29, 1997 - 3rd payment

October 29, 1997 - 4th payment

April 29, 1998 - 5th payment


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October 29, 2000 - final payment

"d.Again, had the Ongs not invested in FLADC in August 1994, then by thetime FLADC would have made its initial amortization payment of

P18,825,459.97 on April 29, 1996, it would have been paying interest in the

total amount of P59,613,940.60 (P2,980,697.03/month x 20 months).

"Again, even assuming that the mall which FLADC was building was already

completed, it was impossible to generate these amounts from the mall operationfor that short period of time.

"e.Clearly, the Tius were constrained to invite a partner to rescue FLADC fromits inevitable bankruptcy."

With the above illustration of the Ongs, it became incumbent upon the Tius to counter itby showing how it would have been able to generate such income as would enable

FLADC to pay interest and loan amortization without P190 million infused by another

group. This the Tius failed to do. All the Tius made was their bare allegation that the

Mall was already more than 50% tenanted at that time, and was capable of paying the

interests and amortization.

The Tius' claim that they invited the Ongs to come in as stockholders of FLADC to

expand the company's leasing business does not also appear to be true. Were this the

case, they should have used the new capital infusion of the Ongs to purchase adjoining

properties and/or erect a new building that could be connected with the existing structure

of FLADC. The Ongs put it in the following manner: "A close reading of the Pre-

Subscription Agreement belies the claims of the Tius. The reality, as clearly appearing in

the said agreement, is that the parties intended to fully liquidate 29 the P190 million loan

of FLADC with PNB so that the company could continue to operate on a clean slate

without the need of paying enormous interests. The reason is simple. Since the Tius werenot able to attract enough lessees to occupy the Citimall, they knew that they would not

be able to raise enough funds to pay its loan with PNB. Thus, the Tius invited the Ongs

primarily for two reasons: [1] to pay off FLADC's obligation with PNB, and [2] to help

the Tius fill up the Citimall with new lessees."

The Court also notes that while it was the Tius who started the corporation, they

acquiesced to the arrangement that the President should come from the Ong Group and


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the Board of Directors shall comprise of six (6) members from the Ongs, and only five

(5) from the Tius. If the Tius were not desperate or in financial distress why should they

agree to such an arrangement when, as claimed by the Tius, (Petition, p. 74,Rollo, G.R.

No. 144629, p. 171), the appraised value of the entire property of FLADC as of 1994 was

P420.3 million? If the FLADC had enough funds, why did it have to borrow P70 million

from the Ongs to be used in paying the P190 million loan with PNB? Therefore, we alsoagree with the Court of Appeals when it held that:

"The Tius, in unilaterally rescinding the Pre-subscription Agreement, are now

trying to oust the Ongs from enjoying the fruits of their P190 million investmentin FLADC. This is ingratitude at its height, . . . " 30

As to sub-paragraph (v) suffice it to say that none of the two groups may claim that their

group's business acumen, hard work, and dedication account for what Masagana Citimall

is today because both of the groups contributed money/property and labor thereto.

As to sub-paragraphs (vi) and (vii), the Court of Appeals indeed erred in finding that the

Tiu Group violated the Pre-Subscription Agreement since the deed of assignment over

the 151 sq. m. lot was not executed by the Tiu Group but by the Lichaucos in favor of

FLADC. Hence, the Tiu Group cannot be credited with the number of sharescommensurate to the value of said lot and will not, therefore, be able to equal the Ong

Group's one million subscription in FLADC.

We do not agree with the following discussion of the Court of Appeals on this point:

"Under the Pre-Subscription Agreement, the Tius were obliged to execute a

Deed of Assignment over a 151 square meter parcel of land in favor of FLADC

as payment of 49,800 shares thereof at a par value of P100.00 per share (seeparagraphs 14, 15 and 17 of the Pre-Subscription Agreement, p. 214,Rollo).

While there is on record a Deed of Assignment thereon in favor of FLADC (pp.

308-312,Rollo), said Deed of Assignment was not executed by the Tius in favor

of FLADC. The Deed of Assignment was executed by the Lichaucos in favor ofFLADC (Ibid). If ever somebody has to be credited with the number of shares

commensurate to the value of the 151 square meter property, it will not be the

Tius but the Lichaucos.

"Per the Pre-Subscription Agreement, the 151 square meter property shall be

used by the Tius to acquire a number of shares in FLADC in order to equal the 1

million subscription of the Ongs in FLADC (supra). It turned out, however, that

the 151 square meter property was acquired by FLADC for a consideration ofP900,000.00 (see paragraph 5 of Deed of Assignment, p. 309,Rollo). It will

therefore be iniquitous were the Ongs to credit the Tius the number of shares in

FLADC commensurate to the value of the 151 square meter property when the


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Tius did not contribute the same for the purpose of acquiring shares in FLADC.

The deed assigning this property to FLADC was executed by the Lichaucos for

a consideration which FLADC itself paid. Said deed was executed even beforethe Pre-Subscription Agreement was entered into between the parties.

Consequently, the Tius cannot be credited with the number of shares

commensurate to the value of the 151 square meter property and will nottherefore be able to equal the Ongs' 1 million subscription in FLADC in

accordance with their undertaking in the Pre-Subscription Agreement (see

paragraph 14 of Pre-Subscription Agreement, p. 214,Rollo)." 31

The Tius aver that the direct transfer of the property from the Lichaucos to FLADC did

not prejudice the Ongs or FLADC. According to the Tius, what is important is that theyobtained title to the 151 sq. m. property in the name of FLADC after the execution of the

Pre-Subscription Agreement, and possession thereof has already been turned over to the

corporation. Per the Tius, they cannot be denied full credit for such property contribution,

without unjustly enriching the Ongs and FLADC which are now exercising control over

the said property.

The Tius make the following explanations:

"During the brief negotiations that culminated in the execution of the Pre-

Subscription Agreement, the Tiu Group informed the Ong Group that as early as

March 1994 they had acquired from the Lichauco family another adjoiningproperty consisting of 151 sq. m. which was actually intended for the expansion

of the mall. They disclosed to the Ong Group that the Deed of Assignment over

the said property was placed in the name of FLADC and was to be directlytransferred from the Lichauco family to the corporation. This is precisely the

reason why the property was described in the Pre-Subscription Agreement as

'[t]he lot under Transfer Certificate No. ________ with an area of 150 sq. m.,more or less . . . ,' clearly indicating that all that the parties were waiting for, at

the time they were discussing the terms of the Pre-Subscription Agreement, was

the issuance of the title to the said lot.

"The Ong Group were (sic) fully aware of the real status of the 151 sq. m.property when they agreed to consider it as one of the property contributions of

the Tiu Group in payment for their additional subscription in FLADC." 32

The Tius' contentions on this issue are well taken. We do not see why the Lichaucos, and

not the Tius, should be credited with the number of shares commensurate to the value of

the 151 sq. m. property. The Lichaucos are not parties to the Pre-Subscription Agreement

and are not even demanding that they be credited with such shares in exchange for the

said property. Just like this property, the 1,902.30 sq. m. parcel of land in the name of

Masagana Telamart, Inc. (also a corporation owned by the Tius), was also acquired bythe Tius before the execution of the Pre-Subscription Agreement. The fact that the

1,902.30 sq. m. property was acquired by the Tius beforehand does not prejudice the


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Ongs, as shown by the Ongs' non-objection to crediting the Masagana Telamart, Inc. with

the commensurate number of shares, subject only to the Tius' payment of the expenses

for the transfer of the title in the name of FLADC. So, too, in the case of the 151 sq. m.

property, the fact that the Deed of Assignment between the Lichaucos and the FLADC

was executed prior to the execution of the Pre-Subscription Agreement does not prejudice

the Ongs. Therefore, the Tius should be credited with 49,800 shares in FLADC for thisproperty contribution, pursuant to the Pre-Subscription Agreement.

Sub-paragraph (viii) of the second assigned error states that the Tius turned over to the

Ong Group the entire amount of FLADC funds mentioned in paragraph 5 of the Pre-

Subscription Agreement 33The Tius have the following explanation: " . . . sometime in

August 1994, the total amount of these available funds had not yet been determined.

Consequently, in lieu of these funds, which amounted to P5,840,089.12,

P1,.30,002.63(sic) of which had been earlier remitted to FLADC, Mr. Tiu paid the sameusing the P20 million he borrowed from Mr. Ong Yong. Such payment dispensed with

the need to remit the said funds to FLADC." 34Why should Mr. Tiu pay P20 million if heonly needs to remit P5.8 million?

At any rate, assuming that the Tius' claim on this point, is true, the same is not reasonenough to alter the order of the Court of Appeals for the liquidation of FLADC.

On sub-paragraph (x), the Tius maintain that they never siphoned any rentals due to

FLADC to their MATERRCO account. In fact, the Tius continue, the trumped-up

criminal charges filed by the Ongs against Mr. and Mrs. Tiu regarding the aforesaid act

of siphoning FLADC funds, filed during the pendency of the rescission case with the

SEC to harass the Tius, were dismissed by the DOJ in its Resolution dated 15 Feb. 1999.

The argument fails to persuade. The dismissal of the said criminal case does not

necessarily mean that no act of siphoning FLADC funds was committed by the Tius. The

following excerpts from the testimony of Mr. David Tiu on cross-examination shows

otherwise:

"QMr. Tiu, of course, you will admit that during the transition period, you were

already operating Masagana Superstore, is that not correct?

"AYes, partly we are occupying a portion of the building.

"QOf course, Masagana Superstore was operated by Matterco, Inc. of which

you were the president?

"AYes, Ma'am.

"QAnd I understand also that Matterco, Inc. is wholly owned or majority owned

by the Tius?
http://www.cdasiaonline.com/search/show_article/2611?search=gr%3A+(144476*)#footnoteshttp://www.cdasiaonline.com/search/show_article/2611?search=gr%3A+(144476*)#footnoteshttp://www.cdasiaonline.com/search/show_article/2611?search=gr%3A+(144476*)#footnoteshttp://www.cdasiaonline.com/search/show_article/2611?search=gr%3A+(144476*)#footnoteshttp://www.cdasiaonline.com/search/show_article/2611?search=gr%3A+(144476*)#footnoteshttp://www.cdasiaonline.com/search/show_article/2611?search=gr%3A+(144476*)#footnotes


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"AYes, Ma'am.

"QIs it wholly owned by the Tius?

"AMajority owned.

"QMr. Tiu, I am showing to you a rental receipt no. 067 of Mercury DrugCorporation which is a tenant of FLADC. This rental receipt is a receipt

of Masagana Superstore operated by Matterco., Inc. Do you affirm that

this receipt was issued by Masagana Superstore operated by Matterco,

Inc. and that the rental here pertains to a rental due from MercuryDrugstore which is a tenant of FLADC?

"AThis was mistakenly deposited at Masagana account.

"xxx xxx xxx

"QMay I show you another receipt likewise issued by Masagana Superstore

operated by Matterco, Inc. dated October 5, 1994. Will you please tellme if this another account, another payment that was mistakenly

deposited to the account of Masagana?

"AThis is also one of these . . . Because during the time . . . (TSN, March 5,

1997, pp. 88-91, a certified true copy of which forms part of Annex "N"and marked as Annex "N-3") 35

Finally, the Tius disagree with the Court of Appeals' characterization of the P70 million

paid by the Ongs to FLADC. The Tius allege that the P70 million paid by the Ongs inexcess of the actual par value of one million shares they acquired from FLADC was apremium on capital and not an advance. The Tius contend that the receipt, Exh. "4," the

Ongs' own exhibit, is quite clear that the amount of P170 million was the agreed price for

the Ong Group's subscription to one million shares in FLADC representing 50% of the

capital stock of the corporation. Exh. "4," reads:

"Received from Mr. Ong Yong the amount of TWENTY MILLION PESOS(P20,000,000.00) in full payment of the agreed price of ONE HUNDRED

SEVENTY MILLION PESOS (P170,000,000.00) representing his group's

FIFTY PERCENT (50%) share in First Landlink Asia Development

Corporation."

The Tius explain that the excess payment of P70 million, considering that the par value of

the one million shares subscribed by the Ongs was only P100 million, at P100 per share,in corporation law, is called "paid-in surplus" or premium.


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We are not convinced. This issue was very well discussed by the Court of Appeals, and

we agree and quote:

"But the available funds of FLADC were not enough to cover theP90,000,000.00 more needed to pay the PNB loan because all there was of

FLADC's funds at the time was P5,840,089.12 (pp. 734-735,Rollo). It was then,therefore, that the Ongs advanced P70,000,000.00 in cash to FLADC while theTius advanced P20,000,000.00 in cash, an amount they also had to borrow from

the Ongs (pp. 437-441,Rollo).

"The Pre-Subscription Agreement is explicit in its terms that the Ongs agreed

to pay P100,000,000.00 only for 1 million shares in FLADC at a par value ofP100.00 per share (p. 211,Rollo). FLADC's application for an increase in

capital stock shows that the par value of each of its shares is P100.00 only (pp.

185-186,Rollo). The same application also shows that the Ongs subscribed to 1

million shares of FLADC at a par value of P100.00 per share (Ibid). There is

nothing in the application which shows that FLADC's shares are to be sold at apremium or at an amount higher than the stated par value per share (Ibid).

"The receipt which states that the Ongs paid P170,000,000.00 for a 50% sharein FLADC must not be construed to mean that the Ongs paid P170,000,000.00

for one million shares in FLADC, thereby making the P70,000,000.00 thereof a

premium or paid in-surplus on the actual par value of 1 million shares (p. 182,

Rollo). To treat the P70,000,000.00 as premium would not only have the effectof modifying the Pre-Subscription Agreement, but would actually novate it (see

Article 1291 (1), New Civil Code).

"To allow a novation of the Pre-Subscription Agreement in this manner wouldnegate or contravene the very intention of the parties in entering into the Pre-Subscription Agreement which is to maintain EQUALITY between them.

"The Tius, in filing the complaint for rescission a quo, rely heavily on the Pre-

Subscription Agreement and even emphasized that it was entered into with theintention of maintaining EQUALITY as regards the parties standing in FLADC

(pp. 127-136,Rollo). If the Court were to allow the P70,000,000.00 to be

classified as premium or paid-in-surplus, then the Tius' theory will altogether

crumble. The respective valuation of the properties to be used as payment of theTius' 1 million share in FLADC which were presented in evidence to prove that

said properties are worth more than the agreed value thereof in the Pre-Subscription Agreement; and therefore when added to the P45,020,000.00 paidup capital, are worth more than 1 million shares in FLADC, is of no

consequence (pp. 1023-1047-A,Rollo). The same valuations have been made

AFTER the Pre-Subscription Agreement was entered into and does nottherefore reflect the actual value of the properties at the time the Pre-

Subscription Agreement was entered into (p. 1046,Rollo).


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"The Tius also claim that the P70,000,000.00 cannot be treated as an advance

because there was no board resolution authorizing FLADC to incur such an

obligation (pp. 764-767,Rollo). As pointed out by SEC Hearing Official Soller,the f

xi.1.b. g.r. no. 144476. february 1, 2002

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